IEEJ © December 201419 December 2014
The 418th Forum on Research Work

Economic and Energy Outlook of Japan for FY2015
What about benefit of oil price plunge for stagnating Japanese economy after VAT increase?
YANAGISAWA Akira, R. Ikarii, S. Iwata, I.H. Hwang, K. Tomokawa, Y. Shibata and K. Ito

Executive summary of topics
Restart of nuclear power generation | Delayed restart may call more efficient
process▌ Although two units from the Sendai Nuclear Power Station were approved in September 2014 asconforming to the new regulation standards, developments toward restart takes time in general. They
are assumed to be in operation by the end of FY2014 and they will be the first ones since the Great East
Japan Earthquake in 2011. In the “Nuclear Mid-level Case,” the assumptions are that three review teams
will be provided in FY2015, and they reflect the assessment of the observed developments, the necessity
for large-scale construction, and the order of the applications, etc. Based on those assumptions, a total ofnine units will restart by the end of FY2015, operating on average for six months in the Case.
▌ Even if nine nuclear power plants restart, the electricity generated by nuclear power for FY2015 is stillless than one sixth of its FY2010 level, raising the average power generation cost by about
JPY3,000/MWh compared to FY2010. Relative to FY2010, total spending on fossil fuel imports increases
by JPY1.9 trillion, of which the LNG additional imports of 14.5 Mt will account for JPY1.6 trillion. Under
this Case, the energy-related carbon dioxide (CO2) emissions increase by 45 Mt-CO2 whilst the
self-sufficiency rate decreases by 8.0% point.
▌ If the assessment period turns out to be longer than the one assumed in the Nuclear Mid-level Case,
only the two units already approved would restart by the end of FY2015, generating electricity on
average for one month during FY2015 [Low-level Case]. If the Authorities can further increase their staff
and if the procedures become more efficient, 20 plants could restart and operate on average for sevenmonths during FY2015 [High-level Case]. The “Hypothetical Case” assumes that 32 of the relatively newplants do generate electricity with a capacity factor of 80% throughout the entire year.
▌ The extent to which nuclear power plants can restart and operate has huge impacts on the Japanese
economy, with serious implications regarding the environment and energy security. For example, thepower generation cost under the Low-level Case is JPY2,200/MWh more expensive than under the
Hypothetical Case, requiring an additional spending on fossil fuel imports of JPY2.0 trillion. The
Hypothetical Case accelerates GDP by 0.3% while decreasing CO2 emissions by 117.8 Mt, or 9.8% of
the emissions in FY2005, and improving the self-sufficiency rate by 9.9 percentage point. The differencein LNG import volume between the two cases would reach 20.6 Mt meaning Japan would import less
LNG in the Hypothetical Case than the country did just before the Earthquake. The resulting significant
decrease in Japan’s LNG imports, combined with the anticipated LNG exports from the United States,
beginning in 2016, and others would contribute to a more balanced supply-demand of the international
LNG markets in the future.

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Figure 1 | Impacts of restarting nuclear power plants
Nuclear power
generation (TWh)Power generation
cost (JPY/kWh)Total spending on
fossil fuel imports(JPY trillion)

LNG imports
(Mt)

300

15

30

90

14

28

288

250

233

200

13
11.7
11.2
10.7

11.5
11

102

96

10
9.5

50
0

2010

85.0

85

44

9

1
2015

8 8.2

2010

Historical2015

Low-level

1,200

83.2
81.0

80

12

100

89.6 1,250

26

150

CO2 emissions(Mt-CO2)

1,190
1,173

1,150

24
23.1

75
20.4
20.0
19.4

18.4

18 18.1
2010

2015

Mid-level

1,142
1,123

22
20

1,168

70 70.6

1,100
69.0

1,072
1,050

65

2010

High-level

2015

2010

2015

Hypothetical

Impacts of lower energy prices | Exertion required for a secure energy supply
and demand structure▌ Oil prices have further plummeted after the OPEC decision not to cut its production at its meeting inNovember 2014. The decline in oil prices for the period of August to October 2014 saved
JPY150 billion in income transfer from Japan to oil producing countries. Households and corporations
benefit from decreases in prices of petroleum products e.g. gasoline and kerosene, and lower electricity
and gas tariffs.
▌ A risk of re-rising international oil price remains. A rise in oil prices of $10/bbl reduces Japanese GDP by
0.3% and worsens its trade balances by JPY2.0 trillion. While less corporate profits depress private
investments, and decline income, a rise in prices also harm purchasing power impeding recovery ofprivate consumption. The establishment of secure energy supply and demand structure is required toachieve stability in economic growth without continuously be at the mercy of international hick-ups.

Household energy spending exceeds JPY300 thousand for the first time
▌ Energy burdens household with expenditures of more than JPY300 thousand in 2014 for the first time
ever, raising its proportion of consumption expenditures to 8.6%, a historical high. The burdens, mainly
affected by electricity prices, slip to JPY290 thousand in 2015 thanks to lower international energy prices.
The amount, however, is still comparable with that in 2008 when oil price skyrocketed.
▌ Proportion of energy spending of household expenditures for rural households, which is higher thannational average, exceeds 10% in 2014. Although it falls in 2015, the gap of the proportion between
rural area and large city remains almost unchanged, burdening local economy. Hokkaido and Tohoku
regions, in which kerosene-fuelled space heating is widespread, and intensive gasoline consuming regions
benefit relatively more from lower oil price.

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Executive summary of outlook for FY2015 (Base Scenario)
Macro economy | Japanese economy recovers, and grows by 1.8% due toimprovements of private consumption and investments, etc. in FY2015▌ Japan sees 0.6% of economic contraction in FY2014, primarily due to the rise in the VAT rate. For
FY2015, depreciation of the yen and lower international energy prices expand corporate profits,
stimulating private non-residential investments. Private consumption is also pushed by improvement ofwages. The economy grows at 1.8% led by domestic demand.

Energy supply and demand | Whilst total energy increases in FY2015, oil andnatural gas decrease▌ Total primary energy supply in FY2014 reduces sharply by 13 Mtoe due to dull economic and weather
conditions. Economic recovery leads a 0.9% increase in energy consumption in FY2015. Oil and naturalgas, however, see decreases affected by restarts of nuclear power plants, resulting in fossil fuel importspending of JPY20 trillion, the lowest since the Earthquake.
▌ Final energy consumption decreases also in FY2014, followed by a rebound in FY2015. Whilst industry
and transportation sectors see increases in energy consumption – the first time in the last five years forthe transport sector – due to recovery of production and freight activities and fall of fuel prices, thedecreasing trend in consumption for the buildings sector continues.

Energy sales | City gas maintains growing tone. Electricity regains. Fuel oil is in
declining trend▌ Electricity sales by utilities reduce in FY2014 affected by slow economic activity after the VAT raise and achilly summer. Sales for lighting contract, mainly for household, will increase for the first time in the last
five years in FY2015. Additionally, industrial uses, represented by large-scale power users and backed by
the recovery of production activity, also drive increases in total sales.
▌ Whilst temperature factor depresses city gas sales by utilities for commercial and other uses combined in
FY2014, sales to electric utilities show strong growth. The increase in total sales to industry will be seen
again in FY2015. Sales to industry uses will hit a historical record due to the recovery of production
activities. Sales to household uses will decline slightly with penetration of efficient city gas-fuelled
equipments.
▌ Fuel oil sales show sharp decreases due to fuel switching, the economic situation and weather conditions
in FY2014. In FY2015, gasoline, naphtha and diesel oil regain and total sales, except for fuel oil C forelectric utilities, level off. Fuel oil C for electric utilities, however, diminishes enormously, resulting indecreases in total fuel oil sales for three straight years.

Renewable power generation | Operational capacities will soon be 50 GW. The
cumulative cost burden could be JPY46 trillion▌ Renewable power generation continues to expand supported by high fixed rates under FIT contracts.
Five electric utilities facing excess applications to connection, which may destabilise their power grid,reserve temporarily to answer the applications. Despite such situation, the capacities expected to be inoperation by the end of FY2015 will reach 50 GW. Coincidently, the unavoidable burden expands also.
The cumulative cost burden for 20 years could be JPY46 trillion if all of the authorised 93 GW (of which
75 GW is solar PVs) by the end of August 2014 become operational. This is equivalent to an increase of

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JPY2,600/MWh above the rates in place just before FIT started – an increase of 11% for household and
21% for large-scale industry consumers.

CO2 emissions | Turns to reduce for the first time in the last five years but much
more than before the Earthquake▌ Energy-related CO2 emissions in FY2014 decreases for the first time in five years due to reduced
consumption of oil and electricity. The emissions, which recorded a historical high in FY2013, will be lessthan 1,200 Mt. The emission reductions in FY2015 expand by restarts of nuclear power plants, making
the emission amount 2.9% less than that in FY2005. Energy consumption will be less than before theEarthquake but CO2 emissions will remain more.
Table 1 | Summary of Base Scenario
Historical
Projections
Year-to-year changes
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2013 FY2014 FY2015
Primary energy supply (Mtoe)1
Oil2 (GL)Natural gas2 (Mt of LNG equivalent)
LNG imports (Mt)
Coal2 (Mt)
Nuclear3 (TWh)Final energy consumption (Mtoe)
Industry4

EnergyBuildings
Transport
Petroleum products
Natural gas and city gas
Coal and coal productsElectricity
Electricity sales (TWh)City gas sales5 (Billion m3)
Fuel oil sales (GL)
Energy-related CO2 emissions (Mt-CO2)

Prices(FY2005=100)
Crude oil, import, CIF ($/bbl)
LNG, import, CIF ($/t)
Steam coal, import, CIF ($/t)

EconomyNominal GDP (JPY trillion)
Real GDP (JPY2005 trillion)
Industrial production index (2010=100)
Exchange rate (JPY/$)

514.2
232.3
73.3
70.6
184.7
288.2
339.4
158.3
98.0
83.1
176.2
34.3
35.9
89.8
926.6
39.28
196.0
1,123
93.4
84
584
114
480.2
512.4
99.4
86.1

491.2
238.9
85.7
83.2
175.2
101.7
327.2
152.2
93.7
81.4
169.3
35.1
34.7
85.5
879.5
40.39
196.3
1,173
97.6
114
823
144
473.9
514.4
98.8
79.0

484.9
242.8
89.2
86.9
183.4
15.9
321.8
148.4
92.9
80.4
165.7
34.7
34.3
84.6
870.9
40.33
197.8
1,208
100.4
114
866
127
474.5
519.6
95.8
82.6

488.2
234.1
89.7
87.7
194.6
9.3
321.0
150.8
91.1
79.1
163.4
34.1
36.3
84.7
871.5
39.82
193.5
1,224
101.8
110
837
108
483.1
530.6
99.0
100.0

474.9
221.5
89.8
88.7
189.8
1.0
311.7
146.0
88.8
76.4
156.1
33.8
36.7
82.4
849.5
40.14
184.1
1,196
99.4
92
759
95
489.0
527.3
98.5
111.3

479.0 0.7% -2.7% 0.9%
215.8 -3.6% -5.4% -2.6%
87.0 0.6% 0.1% -3.0%
85.0 1.0% 1.1% -4.2%
190.4 6.1% -2.5% 0.3%
44.4 -41.6% -88.8% 4148%
315.6 -0.2% -2.9% 1.2%
148.6 1.6% -3.2% 1.8%
88.6 -1.9% -2.5% -0.3%
77.9 -1.7% -3.4% 1.9%
156.9 -1.4% -4.4% 0.5%
34.8 -1.8% -0.7% 2.7%
37.8 6.0% 1.0% 3.1%
83.4 0.1% -2.7% 1.2%
862.9 0.1% -2.5% 1.6%
41.09 -1.3% 0.8% 2.4%
180.5 -2.1% -4.9% -2.0%
1,168 1.4% -2.3% -2.3%
97.1
..
..
..
67 -3.6% -16.4% -27.1%
508 -3.3% -9.4% -33.1%
95 -15.1% -12.3% 0.2%
500.0 1.8% 1.2% 2.2%
536.8 2.1% -0.6% 1.8%
100.5 3.3% -0.5% 2.1%
120.0 20.9% 11.3% 7.8%

Notes:
1. Mtoe = 1013 kcal
2. Conversion factors for Oil: 9,126 kcal/L; Natural gas: 13,043 kcal/kg; Steam coal: 6,139 kcal/kg; Coking coal: 6,928 kcal/kg until FY2012.
2. Conversion factors for Oil: 9,154 kcal/L; Natural gas: 13,141 kcal/kg; Steam coal: 6,203 kcal/kg; Coking coal: 6,887 kcal/kg since FY2013.
3. The Mid-level Case
4. Industry includes non-energy use.
5. Conversion factors: 1 m3 = 10,000 kcal

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Introduction
The Japanese economy had been expected topromptly recover after an increase in the
consumption or value added tax in April 2014.
But the recovery has been slower than
anticipated. Expectations and concerns are
mixed about how the Bank of Japan’s additionalmonetary easing and the government’s decision
to postpone another consumption tax increase
would support the real economy.
In the past six months, the yen depreciatedagainst major foreign currencies further, whileinternational oil prices declined by $50/bbl fromthe FY2014 peaks in June. LNG import prices,which reflect oil price changes with about
three-month lag, will begin to drop in early 2015.
Within Japan, a delay in the restart of nuclear
power plants has led Hokkaido Electric PowerCo. to raise electric rates again, while
consumers’ burden accompanying the feed-in
tariff system for renewable energy promotion
has been increasing rapidly. Particularly,
reported grave energy costs for rural regions
and small companies have become burning
problems as well as gap in improvements inincome.
Under the situation, we have projected theJapanese economy and energy supply anddemand and analysed various implications of
the projection.

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Major assumptions in the Base Scenario
World economy
We assume that the world economy willcontinue a moderate recovery in FY2015. The
United States will achieve the fastest economic
growth among major developed countries.
Although the impacts of an end to monetaryeasing and the interest rate hike are a matter ofconcern, the United States economy is assumed
to retain a growth trend, with its annual growthrate rising close to 3% in 2015. As the European
economy has been plagued with destabilising
factors including its soured relations with Russia,
Eurozone GDP has contracted for the second
consecutive year. But European economy isassumed to post a moderate annual growth rateof 1% in 2015 with support from the European
Central Bank as financial markets escape theworst phase. The Asian economy including
emerging countries is still on a robust growth
path despite China’s growth deceleration,
driving global economic growth. The Indian
economy, which had been a matter of concern
once, is firm now and assumed to retain agrowth rate of 6% or more in 2015.

Oil, LNG and coal CIF prices
In response to a decision against any oil
production reduction at an OPEC meeting inNovember 2014, oil prices have fallen further.
We have assumed an oil import CIF price forJapan of $67/bbl in FY2015. The liquefied natural
gas price in FY2015 is assumed to decline to$9.8/MBtu with weak spot prices. As the coalsupply-demand balance is projected to tighten,
the price in FY2015 is assumed to rise to $95/t
and $118/t for steam coal and coking coal,respectively.

assessment, we have assumed that nuclear
reactors will gradually restart from around theend of FY2014. In the Nuclear Mid-level Case
adopted for the Base Scenario, two reactors at
the Sendai Nuclear Power Plant will restart
within FY2014, generating a total of 1.0 TWh inelectricity. In FY2015, total nine reactors will
restart with electricity generated of 44.4 TWh.

Electricity supply and demand
Based on discussions at the government’s
Electricity
Supply-Demand
Verification
Subcommittee, we have assumed that eachelectric utility will secure a reserve capacity rateof at least 3% in its service area throughelectricity conservation and other measures. But
there are many potential risks including theunscheduled suspension of outdated fossil
fuel-fired power plants and meteorologicaleffects.

Temperature
Based on the three-month weather forecast by
the Japan Meteorological Agency, we haveassumed a colder winter in FY2014 than in theprevious year (-0.3 degrees Celsius) and anormal summer and winter in FY2015, whichmeans the same average summer temperature asin the previous year and a colder winter than in
the previous year (-0.1°C).

Yen exchange rate
We have assumed the average yen/dollar
exchange rate at JPY120/$ for the projection
period.

Nuclear power generation
Given data submission for the assessment of
nuclear reactors’ conformity with the new
regulatory standards and progress in the

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Macro economy
The Japanese economy in FY2014 willcontract by 0.6% from the previous year
due to the consumption tax increase forthe first decline in five years
Among private demand components, private
consumption in each quarter will slip below the
year-before level due to the consumption tax
increase and import price hikes. But
non-residential investment will increase ascompanies expand earnings through businessefficiency improvements. Overall private
demand will contribute to reduce GDP by 1.2%.
Among public demand components, public
investment will slightly increase. Government
expenditure including social security spending
will expand. Overall public demand willcontribute to expand GDP by 0.1%. Exports will
gradually increase toward the end of FY2014 as
the brisk United States economy and still robust
emerging
economies
even
after
some
deceleration are coupled with effects of the yen’s
depreciation. As exports grow faster thanimports for the first time in four years, external
demand will contribute to boost GDP by 0.5%.
Trade deficits will narrow to JPY9.8 trillion, still
the second highest ever.

The Japanese economy will grow by 1.8% in
FY2015 as private consumption recovers in
addition to non-residential investment andexports
Among private demand components, private
consumption will increase as consumers’

Economic and Energy Outlook of Japan for FY2015

purchasing power improves due to wage hikes
and asset effects under a stock market upsurge.
Non-residential
investment
will
expandsubstantially thanks to corporate earnings
improvements accompanying domestic demandand export growth. Nominal investment will
exceed JPY70 trillion for the first time since theLehman Shock, achieving a target in thegovernment’s Japan Revitalization Strategy.
Private demand will contribute to expand real
GDP by 1.5%. Among public demand
components, social security spending will
increase while public investment will decline.
Overall public demand will remain unchanged
from the previous year. Exports will continue
increasing as the yen remains weak due to boldmonetary easing, with foreign economies
growing. Imports will go up on domestic
demand expansion. External demand willcontribute to boost real GDP by 0.3%. Nominal
GDP will top JPY500 trillion for the first time ineight years.
Fossil fuel imports will decline to JPY20 trillion,
the lowest since the Great East Japan Earthquake,as nuclear power plants restart with oil and
LNG prices falling. Trade deficits will fall to
JPY7.4 trillion.
Monetary easing and economic recovery will
push up Japan’s inflation rate close to the target
of 2%. While energy prices will exert downward
pressure on inflation, wage and import pricehikes will help accelerate the inflation rate to1.6% in the first quarter of 2016.

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Table 2 | Macroeconomic indicators
Historical
Projections
Year-to-year changes
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2013 FY2014 FY2015
Real GDP (JPY2005 trillion)
Private demand
Private consumption
Private residential investment
Private non-residential investment
Public demand
Government consumption
Public investment
Net exports of goods and services
Exports of goods and services
Imports of goods and services
Nominal GDP (JPY trillion)
Balance of trade (JPY trillion)
Exports
Imports
Fossil fuels
Domestic corporate goods price index (2010=100)
Consumer price index (2010=100)
GDP deflator (2005=100)

512.4 514.4 519.6 530.6 527.3 536.8 2.1% -0.6% 1.8%
377.1 383.6 390.7 399.9 393.5 400.9 2.4% -1.6% 1.9%
299.7 304.0 309.5 317.1 308.0 313.3 2.5% -2.9% 1.7%
12.5 12.9 13.7 14.9 13.3 13.4 9.3% -11.0% 0.7%
64.9 68.0 68.8 71.5 72.2 74.4 4.0% 0.9% 3.1%
118.5 119.2 120.8 124.5 125.1 125.1 3.1% 0.4% 0.0%
97.9 99.1 100.6 102.2 102.6 103.6 1.6% 0.4% 1.0%
20.7 20.1 20.3 22.4 22.5 21.5 10.3% 0.6% -4.3%
16.8 12.0
8.4
7.3 10.3 12.4 -12.8% 40.3% 20.4%
83.6 82.3 81.3 85.1 89.8 94.4 4.7% 5.5% 5.1%
66.8 70.3 72.9 77.7 79.5 82.0 6.7% 2.2% 3.2%
480.2 473.9 474.5 483.1 489.0 500.0 1.8% 1.2% 2.2%
5.3 -4.4 -8.2 -13.8 -9.8 -7.4 68.6% -28.7% -25.0%
67.8 65.3 63.9 70.9 74.3 79.5 10.8% 4.8% 7.1%
62.5 69.7 72.1 84.6 84.1 86.9 17.4% -0.6% 3.4%
18.1 23.1 24.6 28.3 25.5 20.0 15.1% -10.1% -21.7%
100.2 101.6 100.5 102.4 106.0 106.5 1.8% 3.5% 0.5%
99.9 99.8 99.5 100.4 103.4 104.1 0.9% 2.9% 0.7%
93.7 92.1 91.3 91.1 92.7 93.2 -0.3% 1.9% 0.4%

Notes: GDP components may not add up to the total GDP due to minor data deviations.

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Industrial production
Crude steel production will increase in
FY2015 due to brisk electric furnace
production and high value added products
exports, exceeding 110 Mt tons for thethird straight year
In FY2014, crude steel production will remain
above 110 Mt (though with a fall of 0.9% fromthe previous year) as demand for steel forreconstruction from the Great East Japan
Earthquake and external demand are firm
despite adverse effects of the consumption tax
increase on steel demand. In FY2015, domestic
demand for electric furnace products forconstruction will continue to be firm. Cheaper
general-purpose product imports (including
scaffolding materials for construction sites) willremain as high as in the previous year. Backed
by the yen’s appreciation, external demand forhigh value added products will expand. Crude
steel production in FY2015 will increase by 1.0%
from the previous year to the highest level since
the Lehman Shock, topping the FY2013 level.

Ethylene production will reach a full
capacity level in FY2015 after regular
production facility checks end
In FY2014, ethylene production will fall by 1.3%
from the previous year due to some ethylene
plant shutdowns and more regular plant checks.
Some more plants will be closed in FY2015. But
production will rise by 0.2% from the previous
year to a full capacity level to meet growing
domestic and external demand including aswitch from imports to domestically produced
products in Japan and exports to the rest of Asia.

Cement production will top 62 Mt for thethird straight year due to brisk domestic
demand including post-disasterreconstruction and construction.
In FY2014, cement production will stay above
62 Mt, though posting a 0.6% drop from theprevious year, as post-disaster reconstruction
demand continues to be brisk as in the previous

Economic and Energy Outlook of Japan for FY2015

year. In FY2015, cement production will remainunchanged from the previous year at a full
capacity level against the backdrop of robust
fixed capital formation. After a capacity
reduction to meet a medium to long-term
demand fall, cement facilities will continue
operating at their full capacity.

Paper and paperboard production willcontinue a downward trend due to a shift
from paper to electronic media, despitesome freight transport recovery
In FY2014, paper and paperboard production
will decline by 0.5% from the previous year as along-term shift from paper to electronic media iscoupled with the consumption tax increase,
despite increase in paperboard due to freighttransport recovery. In FY2015, paperboard
production will fall due to a switch to thinner,
lighter products, although demand for
paperboards for processed food, mail-order
shopping and parcels will grow robust on a
private consumption recovery. Paper production
will continue the long-term downward trend.
Paper and paperboard production will drop by
0.6%.

Automobile production will recover in thesecond half of FY2014 after dropping on
the consumption tax increase. In FY2015,
the production will rise to 9.8 million
Domestic automobile demand fell on the tax
increase in the first half of FY2014 before
recovering gradually in the second half.
Production in the year will fall by 2.2% from theprevious year, with Japanese automakers
continuing to move production plants fromJapan to foreign countries. In FY2015,
automobile production will increase by 1.1%
from the previous year to 9.81 million as private
consumption recovers with exports expanding
due to the yen’s depreciation. Since the Lehman
Shock, FY2015 production will be the second
highest after the FY2013 level.

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Table 3 | Industrial activities
Historical
Projections
Year-to-year changes
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2013 FY2014 FY2015

Production

Crude steel (Mt)
Ethylene (Mt)
Cement (Mt)
Paper and paperboard (Mt)

Production indices

Automobiles (Million)
Mining and manufacturing (2010=100)
Food
Chemicals
Non-ferrous metals
General and electrical machinery, etc.

Tertiary industry activity index (2005=100)

110.8 106.5 107.3 111.5 110.5 111.6
7.00 6.47 6.26 6.76 6.68 6.69
56.1 57.6 59.5 62.4 62.0 62.0
27.3 26.5 25.7 26.7 26.5 26.4
8.99 9.27 9.55 9.91 9.70 9.81
99.4 98.8 95.8 99.0 98.5 100.5
98.1 97.3 96.7 97.7 95.9 96.5
99.8 98.3 96.5 98.4 98.0 99.8
98.9 97.5 96.6 97.9 98.1 99.5
101.3 100.3 93.1 97.4 98.0 102.8
97.8 98.4 99.2 100.4 99.1 100.4

3.9%
8.0%
4.9%
3.6%
3.8%
3.3%
1.0%
2.0%
1.4%
4.6%
1.2%

-0.9% 1.0%
-1.3% 0.2%
-0.6% 0.0%
-0.5% -0.6%-2.2% 1.1%
-0.5% 2.1%
-1.9% 0.6%
-0.4% 1.8%
0.2% 1.4%
0.6% 5.0%-1.3% 1.3%

Note: Chemicals include chemical fibre.
Note: General and electrical machinery includes general machinery, electrical machinery, information and telecommunications equipment,
electronic parts and devices, precision machinery and metal products.

Economic and Energy Outlook of Japan for FY2015| 10

IEEJ © December 2014

Primary energy supply
Primary energy supply in Japan in FY2014
will decline sharply by as much as 13 Mtoe.
In FY2015, oil and natural gas will decreaseas nuclear power plants restart
Primary energy supply in Japan in FY2014 will
decline by 2.7% from the previous year due totheconsumption
tax
increase,
lower
temperatures and more rain in summer andenergy conservation. Oil and coal will drop
substantially. In FY2015, primary energy supply
will increase by 0.9% from the previous year for
the first rise in two years thanks to an economic
recovery. But the increase will be limited to
one-third of the decline in the previous year due
to energy conservation. Under the impact of
nuclear power plants’ restart, natural gas and oilwill plunge.
Oil in FY2014 will decrease by 5.4% from theprevious year because of a stall in economic
recovery following the consumption tax hike, ashift from expensive oil-fired power generation
to LNG-fired generation, and a fuel switch fromoil to natural gas. Oil in FY2015 will drop by
2.6% to slip below 200 Mtoe for the first time in a
half century as oil-fired power generation
decreases further.
Natural gas in FY2014 will increase by 0.1%
from the previous year to rewrite a record forthe fifth straight year due to growth in
LNG-fired power generation and city gas
consumption. In FY2015, natural gas will fall by
3.0% for the first drop in six years as LNG-fired
power generation declines substantially on the

Economic and Energy Outlook of Japan for FY2015

restart of nuclear power plants, though with city
gas consumption being robust.
Coal in FY2014 will decline by 2.4% from theprevious year for the first drop in three years as
the operating rate of coal-fired power plants
falls on an unscheduled suspension of someplants. In FY2015, coal will increase by 0.4% due
to a rise in industrial coal consumption amid a
recovery in steel and other industrial production,although some coal-fired power generation
plants will be suspended for delayed checks.
Nuclear power generation in FY2014 willslightly increase from the previous year as two
nuclear power plants restart late in the FY2015
since more nuclear power plants restart in theyear. Japan will end the absence of nuclear
power generation at last. nuclear energy willscore the largest supply growth among energy
sources in the year. Nevertheless, nuclear power
generation in the year will be limited to44.4 TWh or one-sixth of the level before theGreat East Japan Earthquake.
Energy-related carbon dioxide emissions will
decline in FY2014 for the first time in five years
after hitting a record 1,224 Mt-CO2 in FY2013. Ascoal and oil consumption falls amid a natural
gas consumption increase, CO2 emissions will
slip below 1,200 Mt for the first time in three
years. As fossil fuel consumption declines
further on the restart of nuclear power plants in
FY2015, CO2 emissions will decline further. But
they will still be above the level for FY2010 that
ended in March 2011 when the Great East Japan
Earthquake occurred.

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IEEJ © December 2014

Table 4 | Primary energy supply
Historical
Projections
Year-to-year changes
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2013 FY2014 FY2015
Primary energy supply (Mtoe)
Coal
Oil
Natural gas
Hydro
Nuclear
OthersSelf-sufficiency rate
Energy intensity (FY2005=100)
Energy-related CO2 emissions (Mt)
(FY2005=100)

514.2 491.2 484.9 488.2 474.9 479.0 0.7% -2.7% 0.9%
119.2 112.8 117.7 126.1 123.1 123.6 7.2% -2.4% 0.4%
212.0 218.0 221.6 214.3 202.7 197.5 -3.3% -5.4% -2.6%
95.6 111.7 116.4 117.9 118.0 114.4 1.3% 0.1% -3.0%
18.2 18.5 16.7 16.9 17.3 17.7 1.2% 2.3% 2.3%
60.7 21.4
3.4
1.9
0.2
9.2 -42.5% -88.8% 4148%
8.7
8.8
9.2 11.0 13.6 16.5 19.5% 23.7% 21.5%
18% 11%7%7%
7% 10%..
..
..
94.2 89.6 87.6 86.4 84.5 83.7 -1.4% -2.1% -0.9%
1,123 1,173 1,208 1,224 1,196 1,168 1.4% -2.3% -2.3%
93.4 97.6 100.4 101.8 99.4 97.1
..
..
..

Note: “Others” include geothermal, new energies, etc.
Note: Heat contents have been revised since FY2013.

Economic and Energy Outlook of Japan for FY2015| 12

IEEJ © December 2014

Final energy consumption
Japan’s final energy consumption will
decrease substantially due to theconsumption tax increase and cooler
summer weather in FY2014 before rising in
FY2015 for the first time in five years to alevel that will still be 7% less than before
the Great East Japan Earthquake
Final energy consumption in FY2014 will decline
by as much as 2.9% from the previous year tothe lowest level in a quarter century due to theconsumption tax increase, cooler summer
weather and electricity/energy conservation
efforts. As mainly the industry and transport
sectors expand energy consumption thanks toan economic recovery in FY2015, final energy
consumption will increase by 1.2% to a level thatwill still be down 7% from before the Great East
Japan Earthquake.
In the industry sector, final energy consumption
in FY2014 will fall by 3.2% from the previous
year due primarily to the tax increase. In FY2015,
coal, naphtha and electricity will increase due toa recovery mainly in iron and steel, automobile
and petrochemical production, while diesel andheavy fuel oils will decrease. Final energy
consumption as a whole in the industry sector
will expand by 1.8%. As a fuel switch makes
further progress, city gas will post the highest
growth among energy sources.
In the residential sector, city gas and liquefied
petroleum gas will increase in FY2014 aswater-heating demand expands due to lower
summer and winter temperatures. But kerosenein the sector will decrease due to a fuel switch tocity gas and electricity. Electricity, however, will
also fall substantially because of a drop in
space-cooling demand. Overall, the residential

Economic and Energy Outlook of Japan for FY2015

sector’s final energy consumption will drop by
1.6% from the previous year to less than 50 Mtoe.
In FY2015, electricity will recover slightly due tofirm demand for “all electrification.” City gas
will decline under the long-term trends offalling
population
andenergy-efficientequipment penetration. Kerosene and LPG will
fall on a fuel switch to electricity and city gas.
The
residential
sector’s
final
energyconsumption as a whole will decrease by 1.0%
for the fifth straight year, continuing thedownward trend after the earthquake disaster.
In the commercial sector, final energy
consumption in FY2014 will log a substantial
drop of 3.6% from the previous year due to tax
hike-induced economic stagnation coinciding
with a drop in space-cooling demand underlower temperatures in summer. In FY2015, thesector’s final energy consumption will increaseby 0.7% for the first rise in three years as
economic activities expand. Electricity and city
gas will increase while kerosene and heavy fueloil A will continue declining amid the fuelswitch.
In the transport sector, final energy consumption
will continue a downward trend due to aplateauing vehicle fleet and fuel efficiency
improvements accompanying fuel efficient andmini vehicles’ growing share of the fleet. In
FY2014, the sector’s final energy consumption
will post a substantial decline of 3.4% due to fuelprice rises amid the tax hike and the yen’s
depreciation as well as lower temperatures andheavy rainfall in summer. In FY2015, theconsumption will increase by 1.9% for the firstrise in five years as freight transport expands onan economic recovery, with gasoline and diesel
oil prices falling on crude oil price drops.

| 13

IEEJ © December 2014

Table 5 | Final energy consumption
Historical
Projections
Year-to-year changes
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2013 FY2014 FY2015
Final energy consumption (Mtoe)
Industry
Buildings
Residential
Commercial
Transport
Coal and coal products
Petroleum products
City and natural gases
Electricity
Others339.4 327.2 321.8 321.0 311.7 315.6
158.3 152.2 148.4 150.8 146.0 148.6
98.0 93.7 92.9 91.1 88.8 88.6
54.6 52.8 51.8 50.5 49.7 49.1
43.4 40.9 41.1 40.6 39.2 39.4
83.1 81.4 80.4 79.1 76.4 77.9
35.9 34.7 34.3 36.3 36.7 37.8
176.2 169.3 165.7 163.4 156.1 156.9
34.3 35.1 34.7 34.1 33.8 34.8
89.8 85.5 84.6 84.7 82.4 83.4
3.2
2.7
2.5
2.6
2.7
2.7

-0.2%
1.6%
-1.9%
-2.6%
-1.2%
-1.7%
6.0%
-1.4%
-1.8%
0.1%
1.1%

-2.9% 1.2%
-3.2% 1.8%
-2.5% -0.3%-1.6% -1.0%-3.6% 0.7%
-3.4% 1.9%
1.0% 3.1%-4.4% 0.5%
-0.7% 2.7%
-2.7% 1.2%
3.3% 0.3%

Note: Industry includes non-energy use.

Economic and Energy Outlook of Japan for FY2015| 14

IEEJ © December 2014

Electricity sales and power generation mix (electric utilities)
In FY2015, electricity sales for lighting
contracts will increase for the first rise infive years and those for large-scale power
contracts will recover
Electricity sales in FY2014 will fall by 2.5% fromthe previous year due to a plunge in sales forlighting and commercial contracts under cooler
summer weather in the first half. Sales for power
contracts with large industrial users will decline
for the first time in two years because of
production’s stagnant recovery.

In FY2015, electricity sales will increase by 1.6%
as the supply and demand balance eases on therestart of nuclear power plants. Sales for lighting
contracts mainly for the residential sector willturn upward for the first time since theearthquake disaster, supported by firm “allelectrification” demand. Sales for power
contracts will expand for the first time in two
years as industrial electricity consumption
drives the sales growth due to recovering
production in manufacturing industries.

Table 6 | Electricity sales (electric utilities)
Historical
Projections
Year-to-year changes
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2013 FY2014 FY2015
Total (TWh)Lighting contracts
Power contractsof which: Large-scale industrial users
Mining and manufacturing
Chemicals
Iron and steel
Machinery926.6 879.5 870.9 871.5 849.5 862.9 0.1% -2.5%
304.2 288.9 286.2 284.3 274.6 276.1 -0.7% -3.4%
622.4 590.5 584.7 587.2 574.9 586.8 0.4% -2.1%
283.2 274.1 267.4 269.3 267.9 273.1 0.7% -0.5%
234.4 227.9 221.3 222.8 222.0 227.3 0.7% -0.4%
28.1 27.2 26.3 26.6 26.4 26.8 0.9% -0.8%
36.3 36.5 36.0 37.3 37.7 38.1 3.8% 0.9%
74.6 71.6 69.0 69.2 68.6 71.3 0.4% -0.9%

1.6%
0.5%
2.1%
2.0%
2.4%
1.5%
1.1%
4.0%

Note: Power contracts and total include specified-scale demand.

In FY2015, electric utilities’ electricity
generated and purchased will recoverslightly. Fossil fuel-fired power generation’sshare will fall to 81%
Fossil fuel-fired power generation’s share ofelectric utilities’ electricity generated andpurchased will stand at a high level of 87% in
FY2014. LNG-fired power generation, for which
new plant construction is making progress, will
boost its share to 46%, while expensive oil-fired
power generation’s share will decline. Coal-fired
power generation will decrease slightly as theoperating rate falls due to increasing
unscheduled facility suspension.

Economic and Energy Outlook of Japan for FY2015

Nuclear and new energy power generation will
increase in FY2015, accounting for more than
10% of utilities’ total electricity generated andpurchased. New energy’s share will rise to rival
the share for oil, etc. New LNG-fired power
generation capacity in FY2015 will include Units
4 to 6 at the Himeji Daini Thermal Power Plant(starting operation from August 2014 to March
2015) and Unit 3 of the Shin Sendai Thermal
Power Plant (starting operation in December2015). The capacity factor for LNG-fired plants,
however, will decline since nuclear power plants
restart with postponed regular checks
conducted on some LNG-fired capacity.
Generation at plants fired by oil, etc. will also
decrease.

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IEEJ © December 2014

Table 7 | Power generation mix (electric utilities)
Historical
Projections
Year-to-year changes
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2013 FY2014 FY2015
Electricity generated and purchased (TWh)1,028 976.2 962.7 963.5 935.7 950.2

Share
Hydro
Fossil fuel-fired thermal
Coal
Natural and city gases
Oil, etc.
Nuclear
Others

0.1% -2.9%

1.6%

Year-to-year changes(8%) (9%) (8%)(60%) (79%) (90%)(23%) (24%) (25%)(32%) (43%) (48%)(6%) (13%) (17%)(31%) (12%) (2%)(0%) (0%) (0%)

8%
88%
30%
44%
14%
1%
3%

9%
87%
30%
46%
12%
0%
4%

9% -0.0p +0.4p +0.0p
81% -1.6p -1.0p -5.9p
30% +4.9p -0.1p -0.2p
42% -4.1p +1.8p -3.2p
9% -2.4p -2.7p -2.5p
5% -1.0p -0.8p +4.5p
6% +2.6p +1.4p +1.4p

Note: Only for general electric utilities until FY2012.

Economic and Energy Outlook of Japan for FY2015| 16

IEEJ © December 2014

City gas sales (city gas utilities)
In FY2014, city gas sales will increase on
the strength of growing city gas-fired
power generation. In FY2015, those sales
will hit a record as industrial sales expand

increase, sales per contract will decline due toshrinking household sizes and the penetration of
more efficient water-heating equipment. The
residential use’s share of total city gas sales will
narrow to 23% in FY2015.

City gas sales to the residential use will reflect
water-heating demand growth under cooler
summer weather in FY2014. But those to thecommercial sector (commercial and “other”uses) will indicate a fall in space-coolingdemand. Under lower winter temperatures,
those to the residential and commercial uses will
increase thanks to water- and space-heating
demand growth. City gas sales to electricutilities will increase substantially as a city
gas-fired power generation plant starts
operation in the Kanto region. Sales to thecommercial use and the industry use (other thanelectric utilities) will decline due to stagnant
economic activities following the tax hike.
Overall city gas sales in FY2014 will increase by
0.8% from the previous year. In FY2015,
water-heating demand in the residential sector
and air-conditioning demand in the commercial
sector will remain unchanged from the previous
year as summer and winter temperatures stayunchanged. City gas use for cooking in theresidential and commercial sectors will fallslightly amid the long-term trends of falling
population and energy-efficient equipment
penetration. Steam generation, water heating
and other heat demand in the commercial sector
and the industry sector (other than electricutilities) will increase thanks to an economic
recovery. Overall city gas sales in FY2015 will
post a greater increase of 2.4%, hitting a record
high.

City gas sales to the commercial sector(commercial and “other” uses) in FY2014 will
decrease as space-cooling demand falls due tosharp growth amid heat waves in the previous
year and energy conservation. City gas sales will
decline by 3.7% for commercial uses and by
4.0% for “other” uses (including medical andpublic sector users). In FY2015, city gas sales tothe sector will increase due to unchanged
temperatures and the penetration of city
gas-fuelled air-conditioning equipment and city
gas-fired cogeneration systems. Sales will
expand by 2.7% and 2.3% for commercial usesand “other” uses, respectively.

City gas sales to the residential use in FY2014
will increase by 1.1% from the previous year for
the first rise in two years due to water-heating
demand growth under lower summer
temperatures. Those sales in FY2015, though
benefitting from leap-year effects, will fall by
0.1% due to the long-term trends of falling
population and energy conservation. While thenumber of contracts for the residential use will

Economic and Energy Outlook of Japan for FY2015

Of city gas sales to the industry use in FY2014,
those to electric utilities will increase by
800 Mm3 from the previous year due to the startof commercial operation at the Kashima
Thermal Power Plant’s Unit 7, a large
combined-cycle generator. Sales to the others
including manufacturers will fall due tostagnant production activity. City gas sales tothe industry use in the year will increase by 2.4%
from the previous year thanks to the growth in
those to electric utilities. In FY2015, sales to theothers in the industry use will turn up for the
first time in four years. As the capacity
utilisation rate for existing equipment of
manufacturers increases on a production
recovery, sales to the industry use as a wholewill rise by 3.4% for the second straight year ofincrease. The use’s share of city gas sales will
increase to 57% in FY2015.
Under the city gas sales deregulation program
started in 1995, sales to large industrial users
consuming 100,000 m3 or more per year havebeen liberalised. New gas suppliers’ sales tolarge industrial users have declined since
FY2011 as the capacity utilisation rate has fallen
for existing consumers’ equipment. New gas| 17

IEEJ © December 2014

suppliers’ share of sales to all large industrial
users dropped from 17% in FY2011 to 11% in thefirst half of FY2014. But the number ofapplicants for entry into gas supply has
increased. City gas users subject to suppliers’

sales competition have shifted from a small
number of large users to a large number ofrelatively smaller users, indicating a growing
number of users benefitting from competition.

Table 8 | City gas sales (city gas utilities)
Historical
Projections
Year-to-year changes
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2013 FY2014 FY2015
Total (Billion m3)
Residential
Commercial
Industrial
For electric utilities
For other users
Others39.28 40.39 40.33 39.82 40.14 41.09 -1.3%
9.79 9.79 9.80 9.55 9.66 9.64 -2.5%
4.75 4.50 4.52 4.49 4.32 4.44 -0.6%
21.61 23.12 22.92 22.20 22.72 23.49 -3.2%
1.43 1.53 1.89 1.94 2.75 2.89 2.6%
20.18 21.59 21.03 20.26 19.97 20.61 -3.7%
3.13 2.97 3.09 3.58 3.43 3.51 15.6%

0.8% 2.4%
1.1% -0.1%-3.7% 2.7%
2.4% 3.4%
41.7% 4.9%
-1.4% 3.2%
-4.0% 2.3%

Notes: Converted at 1 m3 = 41.8605 MJ (10,000 kcal)

Economic and Energy Outlook of Japan for FY2015| 18

IEEJ © December 2014

Fuel oil and LPG sales
A long-term downward trend will continue.
In FY2015, fuel oil sales excluding heavy
fuel oil C for electric utilities will level off
from the previous year

switching from kerosene to electricity or city gas
continues. Although kerosene price drops amid
weak crude oil prices will ease the long-term
downward trend, kerosene sales in FY2015 will
decline by 1.5% to a level seen 44 years ago.

Fuel oil sales in FY2014 will post a large declineof 4.9% from the previous year due to fuelswitching, the consumption tax hike and cooler
summer weather. In FY2015, fuel oil sales
excluding heavy fuel oil C for electric utilities
will level off as gasoline, naphtha and diesel oil
sales turn up on an economic recovery. As heavy
fuel oil C sales for electric utilities plunge,
however, overall fuel oil sales will decline by
2.0% for the third straight year of fall. The fueloil sales drop from FY2013 to FY2015 will total
13 GL of which heavy fuel oil C for electricutilities will account for more than half.

Diesel oil sales in FY2014 will fall by 0.6% fromthe previous year for the first drop in three years
due to the tax hike and a slowdown in truck
transportation
demandaccompanying
reconstruction from the Great East Japan
Earthquake. In FY2015, diesel oil sales will posta small rise of 0.2% as freight transport increases
on an economic recovery.

Gasoline sales have continued a long-term
downward trend due to the growing penetrationof low fuel cost vehicles and fuel efficiency
improvements accompanying expansion of themini-vehicle fleet. In FY2014, gasoline sales will
log a substantial drop of 3.6% from the previous
year due to gasoline price rises and abnormal
summer weather. In FY2015, however, gasoline
sales will increase by 1.5% for the first rise infive years thanks to an economic activity
recovery, gasoline price drops on a crude oil
price plunge and leap-year effects.
Naphtha sales in FY2014 will decline by 4.3%
due to the shutdown of some ethylene capacity
and regular inspections covering more plants
than usual. In FY2015, naphtha sales will
increase by 1.3% in response to domestic
demand growth including a switch fromimported ethylene to domestically produced
ethylene. Naphtha’s share of total fuel oil sales
in FY2015 will rise to around 25%.
Kerosene sales in FY2014 will decrease by 5.6%
from the previous year as a long-term trend of

Economic and Energy Outlook of Japan for FY2015

Heavy fuel oil A sales will decline by 4.4% and5.5% in FY2014 and FY2015, respectively, as
demand for agriculture and ships decreases dueto the penetration of energy efficient equipment
and energy conservation efforts and theirdownward trend continues through a switchfrom heavy fuel oil A to other fuels forenvironmental conservation.
Heavy fuel oil C sales for electric utilities in
FY2014 will record a substantial decline of 23.6%
because of a shift to other electricity sources. In
FY2015, those sales will drop by a further 32.7%
due to the restart of nuclear power plants as wellas the shift. Heavy fuel oil C sales for others will
decline by 4.6% and 6.3% in FY2014 and FY2015,
respectively, due to a fuel switch and energy
conservation. Heavy fuel oil B and C sales’ shareof total fuel sales in FY2015 will decline to arecord low of 7.8%.
Liquefied petroleum gas sales in FY2014 will
increase by 0.4% from the previous year for the
first rise in two years due to an increase inresidential water-heating demand under cooler
summer weather. In FY2015, LPG sales will
decrease by 0.8% as a switch from LPG to otherenergy continues. Annual LPG sales between
FY2013 and FY2015 will thus remain around15.5 Mt.

| 19

IEEJ © December 2014

Table 9 | Fuel oils and LPG sales
Historical
Projections
Year-to-year changes
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2013 FY2014 FY2015
Fuel oils (GL)
Gasoline
NaphthaJet fuel
Kerosene
Diesel oil
Heavy fuel oil A
Heavy fuel oil B and C
For electric utilities
For other users
LPG (Mt)

Economic and Energy Outlook of Japan for FY2015

196.0 196.3 197.8 193.5 184.1 180.5 -2.1% -4.9% -2.0%
58.2 57.2 56.2 55.4 53.4 54.2 -1.4% -3.6% 1.5%
46.7 43.7 43.2 45.7 43.8 44.4 6.0% -4.3% 1.3%
5.2
4.2
4.0
5.1
5.1
5.1 27.1% 0.9% -0.3%
20.4 19.6 18.9 17.9 16.9 16.6 -5.2% -5.6% -1.5%
32.9 32.9 33.4 34.1 33.9 33.9 2.1% -0.6% 0.2%
15.4 14.7 13.8 13.4 12.8 12.1 -2.3% -4.4% -5.5%
17.3 24.0 28.4 21.9 18.1 14.1 -22.9% -17.1% -22.3%
7.7 14.9 19.4 14.4 11.0
7.4 -25.7% -23.6% -32.7%
9.7
9.1
9.0
7.5
7.1
6.7 -16.8% -4.6% -6.3%
16.5 16.4 16.6 15.5 15.6 15.4 -6.5% 0.4% -0.8%| 20

IEEJ © December 2014

Renewable energy power generation

Two years and a half have passed since thefeed-in tariff system started for renewableenergy power generation. Great hopes havebeen placed on renewables that is a purely
domestic resource and emits no carbon dioxide.
But challenges to tackle have increased.
Renewables power generation capacity has
increased too rapidly, resulting in a fast burden
expansion and turmoil. Authorisation has beencancelled for some projects for which land andequipment have yet to be secured. FIT contract
applications have increased too rapidly in someregions, threatening to destabilise electricity
supply. Five electric utilities have frozen
responsetogridconnection
contract
applications.
By the end of August 2014, authorised
renewable power generation capacity totalled
92.7 GW(including
74.6 GW
in
solar
photovoltaics and 3.9 GW in wind). If all
authorised capacity is put into operation,
cumulative burdens for consumers for 20 years
will reach JPY46 trillion 1 amounting to
JPY2,600/MWh, equivalent to 11% of electricrates for households and 21% of those for large
industrial users.

A residual period for electricity purchases from
capacity introduced before the FIT system launch istaken into account. The marginal avoidance cost has
been computed at JPY10,400/MWh, based on“Renewable Energy FIT System” on the website of the
Agency for Natural Resources and Energy. The
capacity factors are assumed at 20% for wind power
generation, 12% for solar PV, 70% or geothermal, 45%
for hydro and 70% for biomass.

1

Economic and Energy Outlook of Japan for FY2015

Figure 2 | Cumulative burden of FIT over 20 years(as of August 2014)
50

46
Solar PV for
non-residence40

JPY trillion

Cumulative burdens for authorised
renewable power generation capacity
would be JPY46 trillion, equivalent to 11%
of electric rates for households and 21% of
those for large industrial users. At the endof FY2015, renewable power generation
capacity in operation will reach 50 GW

30

19

20

10

Biomass, minihydro andgeothermal

Solar PV for
residenceWind30
2012/7 2013/7 2014/8

Particularly, the rapid penetration of solar PV for
which the feed-in tariff is higher has boosted thetotal burdens. As authorised non-residential
solar PV (mega- and middle-solar) projects are
implemented, the burdens will increase further.
The massive penetration of solar PV and wind
power generation as variable electricity sources
threatens to destabilise grid networks and lower
electricity quality. The government is now
verifying the feasibility of grid connection forrenewable energy. On 16 December, thegovernment released tentative estimates ofcapacity for renewable energy grid connection.
In the face of rejected applications for gridconnection and growing requests for gridstabilisation measures, renewable energy power
generators may reconsider their plans. If so,
growth will decelerate mainly in non-residential
solar PV generation. Even in this case,
operational renewable power generation
capacity subject to the FIT system will reach50.0 GW by the end of FY2015 as new capacity
under construction is put into operation.
Non-residential solar PV generation capacity
will expand rapidly to 23.9 GW. Residential andnon-residential solar PV generation capacity willaccount for two-thirds of the total renewable
power generation capacity. As wind power
generation projects take some five years before| 21

IEEJ © December 2014

starting generation, wind power generation
capacity will be limited to 3.9 GW. Total
renewable electricity generation in FY2015 willreach 102.1 TWh (including 34.0 TWh in solar PV,
6.9 TWh in wind and 37.9 TWh in small-scalehydro), accounting for some 10% of Japan’s total
electricity generation.
Figure 3 | Installed capacity of renewable power
generation (operation start basis)
23.9
25

GW

20
14.8

15
10

5

Solar PVfor nonresidence

7.3
6.6

7.4
3.1

8.3

Solar PVforresidence
Wind

3.9
3.3

0

Biomass

2011 2012 2013 2014 2015
As of the end of fiscal year

Economic and Energy Outlook of Japan for FY2015| 22

IEEJ © December 2014

Impacts of nuclear power plant restart on economy and energy
progress in examination, the presence orabsence of large construction operations, theorder of applications, etc. In the Mid-level Case,two units will restart in FY2014 with 1.0 TWh ofelectricity generated. By the end of FY2015, a
total of nine units will restart, operating for six
months on average to generate 44.4 TWh within
the year.

The Sendai nuclear power plant’s restart,
though later than expected initially, isapproaching. Regulators are expected to
improve plant assessment efficiency
In September 2014, the Nuclear Regulation
Authority concluded Units 1 and 2 of Kyushu
Electric Power Co.’s Sendai Nuclear Power Plant
as conforming to Japan’s new regulation
standards. In November, the local governmentof the region hosting the station and theKagoshima Prefecture governor agreed to its
restart. The Sendai Nuclear Power Plant will
restart after the NRA’s approval of a relevant
construction plan and security rule revisions
and its final pre-operation inspection.

In the “Nuclear High-level Case” where thefuture examination of nuclear power plants will
be completed earlier with the assumption for
FY2014 being the same as in the Mid-level Case,a total of 20 units will restart by the end of
FY2015, operating for seven months on average
to generate 95.8 TWh within the year. The NRA
is expected to achieve the High-level Case by
expanding its staff and rationalising nuclear
power plant examination procedures based on
the experiences.

In the “Nuclear Mid-level Case,” the NRA is
assumed to restore a three-team nuclear power
plant examination setup after the Sendai
Nuclear Power Plant restarts in around the endof FY2014. An assumption for the later restart ofnuclear power plants is based on the present

We also developed the Hypothetical Case as areference case where 32 relatively new units will
operate at 80% of their capacity factor.

Figure 4 | Timetable of activities on nuclear power plant assessment
FY2014
Dec

Jan

Feb

FY2015
Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Assessment

Low-level CaseMar

2 units

Assessment
Assessment

Operation

2 units
Assessment

Mid-level Case

9 units

Operation
Assessment

Operation
Assessment

2 units

Assessment

Operation

Assessment

Operation

Assessment
High-level Case

Operation

Assessment

20 units

Operation

Assessment

Operation

Assessment
Assessment

In the Mid-level Case, total fossil fuel imports in
FY2015 will be JPY1.9 trillion more than in
FY2010. LNG import volume will total 85.0 Mt,
14.5 Mt more than in FY2010. The average
power generation cost will be JPY3,000/MWh
higher than in FY2010. Energy-related CO2
emissions will be 45 Mt-CO2 more. Energy

Economic and Energy Outlook of Japan for FY2015

self-sufficiency rate will be 8.0 percentage points
lower.
In the Reference Case [Nuclear High-level Case],fossil fuel imports in FY2015 will be
JPY2.0 trillion [JPY1.0 trillion] less than in the
Low-level Case. The average power generation| 23

IEEJ © December 2014

cost will be JPY2,200/MWh [JPY1,100/MWh] less.
GDP growth will be 0.3 percentage points [0.1
point] higher. CO2 emissions will be 117.8 Mt[47.2 Mt] less. Self-sufficiency rate will be 9.9
percentage points [4.1 points] higher. LNG
import volume will be 20.6 Mt [8.6 Mt] less than
89.6 Mt in the Low-level Case. In the Reference
Case, LNG import volume will be less than
before the earthquake disaster. A substantial
drop in Japan’s LNG imports and the expansionof United States LNG exports from 2016 will

become major factors to ease the supply anddemand balance in the international LNG
market.
Over a medium to long term, nuclear power
plant examination and restart proceduresfeaturing a combination of strictness andpromptness after the earthquake disaster, andtaking advantage of Japan’s nuclear technology
and management skills in the international
community are required.

Table 10 | Impacts of restarting nuclear power plants
FY2010Low-level
Cumulative number ofrestarted nuclear reactors1[FY2014]
FY20015

Average period for operation (months)
Electricity generation by nuclear (TWh)288.2
FY2010

EconomyPower generation cost2 (JPY/kWh)Total fossil fuel imports (JPY trillion)
Oil
LNG
Trade balance (JPY trillion)
Real GDP (JPY2005 trillion)
Gross national income (JPY trillion)

[0]
2
1
1.0

FY2015Mid-level
High-level

[2]
9
6
44.4

Hypothetical

[2]
20
7
95.8

[2]
32
10
233.0

FY2015 (Changes from FY2010)
Low-level
Mid-level
High-level Hypothetical

8.2
18.1
12.3
3.5
5.3
512.4
493.5

+3.5
+2.3
+0.4
+1.9
-13.1
+24.0
+24.3

+3.0
+1.9
+0.2
+1.6
-12.7
+24.4
+24.7

+2.5
+1.3
-0.0
+1.4
-12.2
+24.7
+25.2

+1.3
+0.3
-0.2
+0.7
-11.4
+25.5
+26.0

232.3
73.3
70.6
18.0%
1,123
-6.6%

-13.0
+18.4
+19.0
-9.9p
+66
-1.1%

-16.5
+13.8
+14.5
-8.0p
+45
-2.9%

-21.4
+9.7
+10.4
-5.8p
+19
-5.0%

-25.1
-2.3
-1.5
+0.1p
-52
-10.9%

151
137
3.84

+38
+33
+0.65

+21
+17
+0.44

-3
-9
+0.05

-36
-39
-0.69

EnergyPrimary energy supply
Oil (GL)
Natural gas (Mt of LNG equivalent)
LNG imports (Mt)

Environment

Self-sufficiency rate
Energy-related CO2 emissions (Mt-CO2)
Changes from FY2005
Local pollutants by electric utilities3 (kt)
NOx
SOx

PM
Low-level Case: Only two plants in Sendai Nuclear Power Station restart by the end of FY2015.
Mid-level Case: Two plants in Sendai Nuclear Power Station restart by around the end of FY2014,
followed by other plants under the current assessment system and condition.
High-level Case: A case in which the assessment system is enhanced and procedures become more efficient.
Hypothetical Case: A hypothetical case in which relatively new 32 plants generate electricity with 80% of capacity factor.

1. Thirty-nine reactors operated at the end of 2010.
2. Power generation cost in FY2010 is for the general electric utilities, estimated based on their profit-and-loss statements.
3. Local pollutants are estimated based on emission intensity by Keisuke Nansai and Yuichi Moriguchi (2012),"NOx, SOx and PM emissions factors of Japanese stationary sources," National Institute for Environmental Studies.

Economic and Energy Outlook of Japan for FY2015| 24

IEEJ © December 2014

International energy price changes’ impacts on economy and energy
Positive impacts of falling international oil
pricesIn response to a decision to refrain from cutting
crude oil production quotas at a general meetingof the Organization of the Petroleum ExportingCountries on 27 November 2014, oil prices
accelerated their decline. The Dubai oil priceplunged by more than $50/bbl from $108.2/bbl inJune to $57.5/bbl on 15 December. The spot LNG
assessment price for Northeast Asia fell by morethan $2.0/MBtu from $12.1/MBtu six months ago
to $10.0/MBtu. As the dollar rose from JPY102 in
June to JPY118 on 15 December, however,
yen-denominated domestic prices’ declines havebeen about 14% less than international pricedrops.
The oil price plunge brought about some
JPY150 billion in oil import spending savings forJapan in only initial three months from August
2014. The oil price plunge has yet to bring about
any great savings in spending for LNG imports
since LNG import prices are linked to oil importprices three months ago. In 2015, however, Japan
will benefit from LNG import spending savings
similar to oil.
Those positive impacts on imports are spillingover to households and companies. From early
June to early December 2014, the averagegasoline price in Japan fell from JPY167/L to
JPY155/L and the average kerosene price from
JPY1,919 per 18 litres to JPY1,800. Electricity
prices also declined by about JPY170 per monthin six months for a standard Tokyo household.
As LNG import prices start a full-blown decline
in the future, city gas and electricity price drops
will grow more remarkable.
In this way, international oil and LNG pricedrops have net positive impacts on Japan.

Economic and Energy Outlook of Japan for FY2015

Japan should develop a resilient energy
supply and demand structure to prepare
for potential rises in international energy
pricesSome predict oil prices to drop further as Saudi
Arabia is reluctant to cut oil production. On theother hand, there is a risk that cold waves,
OPEC’s policy turnaround, a stall in shale oil
production expansion or some other factor could
lead oil prices to rise back. So we have analysed
the impacts of higher import prices than in theBase Scenario ($10/bbl higher than $67/bbl for
crude oil and $73/t higher than $507/t for LNG)
and lower import prices ($10/bbl lower for crude
oil and $73/t lower for LNG) on economy, andenergy supply and demand.
If the oil price rises by $10/bbl, real GDP will
shrink by 0.3%. Fossil fuel imports will increaseby JPY2.4 trillion, leading the trade balance todeteriorate by JPY2.0 trillion. Gross national
income per capita will decrease by JPY22,000.
Corporate earnings deterioration throughincreases in raw materials costs will work to
reduce private non-residential investment by
0.4%. The income drop and import price rises
will reduce the real purchasing power,
preventing
privateconsumption
fromrecovering. Japan has grown more vulnerable tointernational energy price changes than earlier
because of the yen’s depreciation and theabsence of nuclear power generation.
Japan must develop a resilient energy supply
and demand structure to achieve stableeconomic growth without alternating between
optimism and pessimism in response to overseas
developments. To this end, the nation should
develop and pursue the best energy mix throughthe restart and construction of nuclear power
plants over a medium to long term, adopt areasonable LNG pricing formula, improve anddevelop institutions for penetrating renewableenergy and hydrogen and implement electricity
and gas system reform including thediversificationofenergysources
andprocurement sources.

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IEEJ © December 2014

Table 11 | Impacts of changes in oil price (FY2015)

EnergyEconomyBase
Scenario($67/bbl)
Real GDP (JPY2005 trillion)
Gross national income per capita (JPY million)
Balance of trade (JPY trillion)
Fossil fuels
Primary energy supply (Mtoe)
Oil (GL)
Natural gas (Mt of LNG equivalent)

Economic and Energy Outlook of Japan for FY2015

536.8
4.08
-7.4
20.0
479.0
215.8
87.0

High prices ($77/bbl)
Changesfrom Base

535.1
4.06
-9.4
22.4
476.6
214.1
86.6

-0.3%
-0.5%
+28.2%+12.4%
-0.5%
-0.8%
-0.5%

Low prices ($57/bbl)
Changesfrom Base

538.5
4.10
-5.3
17.5
481.8
217.7
87.7

+0.3%
+0.5%
-28.3%-12.4%
+0.6%
+0.9%
+0.7%

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IEEJ © December 2014

Household energy spending exceeds JPY300,000, remaining high in 2015
Despite spreading electricity and energy
conservation efforts, household energy costin 2014 hits a record highEach household has redoubled electricity andenergy conservation efforts since the Great East
Japan Earthquake. Nevertheless, householdenergy cost has increased.
Earlier, the household2 energy cost had peakedin 2008. When the oil import price hit a record$135/bbl in August 2008, the household energy
cost reached JPY290,000 (including a record highof more than JPY100,000 for gasoline andkerosene combined). The energy cost’s share ofhousehold consumption expenditures (aneffective cost indicator, hereinafter referred to as“Energy Engel’s coefficient”) was 8.2%.
Figure 5 | Household expenditures for energy and
300

9%

200

8%

Electricity

Gasoline
Kerosene
100

7%

0

6%
2005
2008
2009
2010
2011
2012
2013
2014
2015

JPY thousand“Energy Engel’s coefficient”

Gases
Energy Engel's
coefficient(right axis)

Source: Compiled and estimated by Statistical Bureau “Family
Income and Expenditure Survey”

When the oil import price exceeded $100/bbl
between 2011 and 2013, the household energy
cost expanded. In 2014, the household energy
cost tops JPY300,000 for the first time ever, with
the Energy Engel’s coefficient hitting a record
8.6%, due partly to the yen’s depreciation. In
2015, the cost will ease slightly on internationalenergy price drops. Nevertheless, the cost will

Households with two or more persons are coveredhere.
2

Economic and Energy Outlook of Japan for FY2015

be almost the same as JPY290,000 in 2008, with
the Energy Engel’s coefficient at 8.3%, higher
than in 2008. Among energy expenses, theelectricity expense has gradually increased since
the Great East Japan Earthquake. The electricity
expense’s share of household consumption
expenditures exceeded 3.5% in 2011 for the firsttime ever and rises to 3.9% in 2014 and 3.8% in
2015.

The electricity expense growth has been amajor factor in the rising household energy
cost in major cities and rural regions since
the shutdown of all nuclear power plants
Since Japan began to depend on fossil fuel-fired
power generation on the gradual shutdown ofnuclear power plants, the rising electricity
expense has become a major factor boosting thehousehold energy cost in major cities, small
cities and rural municipalities.
The electricity expense is increasing rapidly inlarge cities from 2013 to 2015. The electricity
expense accounted for 40% of household energy
cost growth from 2010 in 2013 and will accountfor 50% in 2014 and for 60% in 2015. In small
cities and rural municipalities, the share was
60% in 2013 and will be two-thirds in 2014 andalmost 100% in 2015. In this way, the Energy
Engel’s coefficient in small cities and ruralmunicipalities in 2014 will top 10% for the firsttime ever.
The future restart of nuclear power plants anddeclines in oil and LNG import prices will
reduce the electricity cost in both large cities,
and small cities and rural municipalities. In
large cities, LNG import price drops will slightly
lower the gas cost in 2015. In small cities andrural municipalities, gasoline and kerosene
prices will drop substantially in line with the oil
price plunge in 2015 after rising between 2011
and 2014. But Energy Engel’s coefficient gaps
between large and small cities will fail to narrowso much as energy spending gaps narrow with
consumption gaps widening.

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IEEJ © December 2014

If the restart of nuclear power plants fails to
make progress, with oil prices resuming spikes
under the yen weakened by bold monetaryeasing, small cities and rural municipalities will
particularly be affected. This is because gasoline
and kerosene prices will rise back rapidly while
the electricity cost will remain high. Japan

should recognise the risk of a steep energy cost
increase through hikes in both electricity andgasoline/kerosene prices facing small cities andrural municipalities, and consider andimplement measures to avoid the risk with aview to revitalising rural communities.

Contact: report@tky.ieej.or.jp

Economic and Energy Outlook of Japan for FY2015| 28